Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

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By Chris Shaw

Following a number of weeks in which downgrades far outweighed upgrades among stocks covered by the eight brokers in the FNArena database, the past week has seen a closer balance in terms of ratings changes. Eight ratings were upgraded and 12 downgraded, total Buy ratings now standing at 44.49%.

Australian Pharmaceutical Industries ((API)) was among the upgrades, RBS Australia lifting its rating to Buy from Hold following a review of its model that factored in more optimistic expectations for FY13-FY14. As well, RBS views the stock as attractively priced relative to peers, while also offering a high, fully franked dividend yield.

RBS also upgraded Regional Express ((REX)) to Buy from Hold on valuation grounds, as despite trimming estimates for FY13 post the full year profit result the broker continues to see the shares as too cheap to ignore at current levels.

Macquarie is factoring in higher returns on equity for Bank of Queensland ((BOQ)) in coming years and has lifted forecasts to reflect this, the changes generating an increase in price target. With an improved outlook for the bank, rating has been upgraded to Outperform from Underperform.

Private equity target Billabong ((BBG)) has seen an upgrade from JP Morgan, the broker moving to a Hold rating from Sell given an increased likelihood of a change in ownership given two private equity players are now expressing interest. Price target was increased to reflect the value of TPG's conditional proposal.

A review sees BA Merrill Lynch more positive on some growth options for BlueScope Steel ((BSL)), with potential for the company to be debt free by next March an additional attraction. A strong balance sheet and an attractive valuation further justify BA-ML's upgrade to a Buy rating from Hold previously.

Lynas (LYC)) has finally received a Temporary Operating Licence for the LAMP project in Malaysia and this positive, which also means a reset on some convertible bonds will be avoided, sees Deutsche Bank upgrade to a Neutral rating. Price target was also increased.

Macquarie viewed full year results for WHK Group ((WHG)) as solid, attracted to evidence of the resilient nature of earnings in the business services division in particular. With an attractive yield on offer and expectations for reasonable earnings growth in the coming year the broker upgrades to a Buy rating from Hold. 

Iron ore stocks dominated the downgrades over the past week, with both Fortescue Metals ((FMG)) and Grange Resources ((GRR)) seeing two downgrades in ratings respectively. Both RBS and Citi moved to Hold ratings on Fortescue from Buy previously, this post the company announcing it would defer expansion plans in response to weak iron ore prices.

JP Morgan and UBS made the same changes to ratings for Grange Resources, moving to Hold recommendations from Buy. The weakness in iron ore prices means realised prices for Grange's pellets are higher than operating costs, which has prompted both brokers to adopt a more cautious view on the company. As with Fortescue, earnings estimates and price targets were also lowered.

Gindalbie Metals ((GBG)) and Atlas Iron ((AGO)) didn't escape downgrades, Citi lowering its numbers for both companies to account for cuts to iron ore price expectations. Given this weaker outlook Citi has downgraded both stocks to Hold ratings from Buy previously.

Weaker iron ore prices have also contributed to BA-ML downgrading Arrium ((ARI)) to Hold from Buy, as the softer outlook brings the group's debt and balance sheet into focus. Price target has also been cut to reflect the broker's more cautious outlook.

ALS ((ALQ)), which was formerly known has Campbell Brothers, has been downgraded by Macquarie to Sell from Neutral. This reflects the brokers view that forward looking indicators for the core Mineral Services division are turning down, which could underpin a further de-rating. 

For Ausenco ((AAX)), Macquarie has similarly downgraded to a Hold rating from Buy, this the result of cuts to earnings estimates to account for lower levels of work for emerging companies. The uncertain conditions necessitate a more cautious approach in the view of Macquarie.

Property plays have also seen downgrades, with Citi moving to a Neutral rating on Charter Hall Group ((CHC)) from Buy previously on valuation grounds. This reflects the fact the stock has outperform the A-REIT sector year to date.

GPT Group ((GPT)) has been downgraded to Sell from Hold by Credit Suisse, also on valuation grounds given the stock is trading broadly in line with the broker's revised price target. Given limited scope for upside earnings surprises the broker expects the share price will underperform.

While New Hope ((NHC)) delivered production and sales numbers for FY12 in line with the expectations of Credit Suisse the broker has still downgraded its rating to Neutral from Outperform. The change accounts for some delays to the New Acland Expansion project as well as the relative valuation impact of recent share price outperformance relative to peers. 

With respect to changes to target prices, the largest increases were experienced by Energy Resources of Australia ((ERA)) and Prime Media, in both cases targets being lifted by 8% or more. Resource stocks dominated with respect to cuts to targets, with Grange, Lynas, Fortescue and Gindalbie joining Boart Longyear in seeing targets reduced by at least 13%. For Boart Longyear the change was more than 40%, this reflecting weak earnings guidance from management.

Increases to earnings estimates were most significant for Bank of Queensland and Ten Network ((TEN)), while reductions in earnings forecasts of more than 20% were experienced by Hastings Diversified ((HDF)), Macquarie Atlas ((MQA)), Lynas, Tap Oil ((TAP)), Paladin Energy ((PDN)), Horizon Oil ((HZN)), Independence Group ((IGO)), Boart Longyear and Gindalbie.

Total Recommendations	Recommendation Changes
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